SEBI proposes easing director appointment restrictions at exchanges, depositories to widen talent pool

New business data points to the fact that Market regulator Securities and Exchange Board of India (SEBI) has proposed easing restrictions on the appointment of directors to the governing boards of market infrastructure institutions (MIIs), including bourses, clearing corporations and depositories, saying the existing rules have made it difficult to find suitable candidates, particularly for Public Interest Director (PID) positions.

Under the current framework, a person who is a director of an entity that is a broker, clearing member (CM) or has an associate that is a broker or CM can be deemed ineligible for an MII governing board. Similar restrictions apply to directors associated with depository participants (DPs).

Widening the talent pool for MII boards

In its consultation paper, SEBI stated the existing provisions are proving too restrictive for large financial conglomerates that have multiple subsidiaries operating independently, often with internal ‘Chinese walls’.

“Director of a firm in a conglomerate should not become ineligible as a director in an MII, just because the conglomerate or the holding firm has a separate subsidiary in the business of TM/CM/DP,” SEBI stated in its consultation paper.

The SEBI paper further stated there is a need to review the Bourses and Clearing Corporations Regulations to encourage the flow of expertise and talent into MIIs.

The proposal seeks to extend an existing exemption available to directors of public-sector banks and financial institutions to firms with well-diversified shareholding.

SEBI proposed that “The existing carve-out provided to directors of public financial institution or banks which are in public sector, may be extended to directors of firms which have associates as TM/CM or DP but have well diversified shareholding”.

Under the proposed definition, a firm would qualify as having well-diversified shareholding if no shareholder, other than public-sector shareholders, individually or together with persons acting in concert, directly or indirectly owns 10 percent or more of the stake, exercises control, or holds shares carrying 10 percent or more of the voting rights.

SEBI stated the change is aimed at encouraging a wider flow of expertise and talent into MIIs.

Standardised norms for key MII executives

Separately, SEBI has proposed a standardised framework covering the qualifications, experience, skill sets and certifications required for four critical key management personnel (KMPs) at MIIs: the Chief Technology Officer (CTO), Chief Information Security Officer (CISO), Compliance Officer (CO) and Chief Risk and Information Officer (CRiO).

SEBI stated these positions are critical because MIIs function not only as public infrastructure utilities but additionally as first-line regulators of the capital markets.

While the governing boards at present approve the appointment, reappointment, termination and resignation of these executives, there is no standardised framework specifying the qualifications and experience required for each role.

Under the proposed framework, the governing board of an MII would approve a Standard Operating Procedure (SOP) for each position, incorporating inputs from the relevant statutory committees.

The Standing Committee on Technology (SCOT), for instance, would provide inputs for the CTO and CISO, the Regulatory Oversight Committee (ROC) for the Compliance Officer, and the Risk Management Committee (RMC) for the CRiO.

The SEBI paper noted that, “The criticality of these functions, the qualification or skill-set of the persons appointed to these roles, and the continuity of these functions at all points of time, are of considerable importance to the integrity and orderly functioning of the securities market”.

SEBI has additionally proposed that vacancies in these positions be filled within three months of becoming vacant. Where a vacancy is anticipated, MIIs would have to plan in advance to avoid any gap in these critical functions.

The regulator has additionally sought public comments on whether MIIs should be required to appoint deputies for the CTO, CISO, CO and CRiO positions to ensure continuity if any of the key executives leave.

SEBI has invited comments on both sets of proposals until September 30, 2026.